Kospi hits record highs, but most stocks are being left behind

The Kospi has been setting record highs in consecutive sessions, yet the equal-weighted index — a broader gauge of market-wide returns — has actually fallen, as a flood of money into Samsung Electronics and SK Hynix has driven the headline index sharply higher while leaving a large number of stocks out of the rally.

According to Korea Exchange, the KODEX 200 exchange-traded fund rose 33.42 percent over the past month. Over the same period, KODEX 200 Equal Weight, which tracks the KOSPI 200 equal-weighted index, fell 3.76 percent.

The divergence between two funds tracking the same KOSPI 200 comes down to how each weights its holdings. The KOSPI 200 equal-weighted index rebalances every quarter so that each constituent carries the same weight regardless of market capitalization, narrowing the gap between large-caps and small- and mid-cap stocks — unlike a standard market-cap-weighted index, where bigger companies automatically command larger shares.

In practice, KODEX 200 Equal Weight's top holdings are spread relatively evenly: LG Innotek at 2.51 percent, Samsung Electro-Mechanics at 2.34 percent, LG Electronics at 1.13 percent, SK Hynix at 1.11 percent, Daewoo Engineering at 1.1 percent and Hyundai AutoEver at 1.02 percent.

The market-cap-weighted KODEX 200, by contrast, is overwhelmingly dominated by Samsung Electronics and SK Hynix. Samsung Electronics accounts for 32.7 percent of the fund and SK Hynix 29.29 percent, giving the two stocks a combined weight of 61.99 percent — meaning the index's performance is in effect determined by just those two names.

"The Kospi's rise is hard to call a genuine broad-based advance in terms of quality," said Kim Jong-min, a researcher at Samsung Securities. "It is a differentiated market where only a handful of key leading stocks are pushing the index higher."

Analysts also point to the recent launch of Korea's first single-stock leveraged products as a factor deepening the concentration. "Since the single-stock leveraged ETFs were introduced, retail money has flowed out of existing semiconductor ETFs and Kosdaq semiconductor materials, parts and equipment stocks and concentrated into Samsung Electronics and SK Hynix," said Lee Jae-won, a researcher at Yuanta Securities Korea. "The unusually large share of trading volume captured by those two stocks has pushed the index to new highs, but actual returns have gone in the opposite direction," he added.

The concern is that the more concentrated the market becomes, the greater the potential volatility. The combined share of Samsung Electronics and SK Hynix in total Kospi market capitalization crossed 50 percent for the first time on May 27 and expanded further to 50.9 percent as of the closing price on May 29.

"Last month's performance in the Korean market was the result of extreme concentration," said Kim Jun-young, a researcher at iM Securities. "Fear of missing out on specific sectors and stocks is pulling up both individual share prices and their volatility at the same time." He added that "if the momentum turns, a sharp and rapid pullback cannot be ruled out."

Some in the brokerage industry, however, caution against dismissing the current rally as a purely theme-driven move. Improving conditions in the memory chip sector and upward earnings revisions — both driven by expanding AI investment — are providing fundamental support.

"The upward revision to earnings-per-share estimates for Korean stocks is overwhelming compared with other major markets," said Lee Sang-yeon, a researcher at Shinyoung Securities. "The current share price gains are accompanied by expectations of earnings improvement tied to growing AI investment, which sets them apart from a simple theme-driven rally."